Analysis of Financial Performance
The main purpose of this assessment is to analyze the financial statement of Bestworld International which is engaged in the business of providing health care and wellness products. The company has its main operations in Singapore and is regarded as one of the major companies serving Asia. The assessment would be focusing on the financial disclosures which are shown in the annual reports of the business. The assessment would be including computation of key financial ratio and also vertical analysis of the financial results of the business(Bestworld.listedcompany.com. 2019). The assessment also shows analysis of the key financial ratios and how the same can be affect the decision-making process of the business.
Ratio analysis can be described as tool which is used by the management of a company for measuring the financial performance of the business. The ratio analysis can used also a tool for decision making process and assessing the performance of a business in terms of different aspects such as profitability, solvency and liquidity. The computation of key financial ratios of the business are done considering the financial statement of the company for three years. The different ratios which are computed are shown below:
|
Profitability Ratios |
|||
|
Particulars |
2017 |
2016 |
2015 |
|
Total Revenue |
$ 220,875.00 |
$ 200,764.00 |
$ 101,672.00 |
|
Materials & Consumables Used |
$ 68,279.00 |
$ 53,797.00 |
$ 24,805.00 |
|
Net Profit |
$ 55,146.00 |
$ 34,405.00 |
$ 9,301.00 |
|
Total Assets |
$ 190,590.00 |
$ 153,968.00 |
$ 94,403.00 |
|
Total equity |
$ 129,500.00 |
$ 90,587.00 |
$ 63,700.00 |
|
Gross Profit Margin |
30.91% |
26.80% |
24.40% |
|
Net Profit Margin |
24.97% |
17.14% |
9.15% |
|
Return on Assets |
0.289 |
0.223 |
0.099 |
|
Return on Equity |
0.426 |
0.380 |
0.146 |
|
Solvency Ratio |
|||
|
Particulars |
2017 |
2016 |
2015 |
|
Total Assets |
$ 190,590.00 |
$ 153,968.00 |
$ 94,403.00 |
|
Total equity |
$ 129,500.00 |
$ 90,587.00 |
$ 63,700.00 |
|
Total Liabilities |
$ 61,090.00 |
$ 63,381.00 |
$ 30,703.00 |
|
Current Assets |
$ 171,974.00 |
$ 133,405.00 |
$ 76,599.00 |
|
Current Liabilities |
$ 63,047.00 |
$ 63,972.00 |
$ 30,097.00 |
|
Finance Costs |
$ 156.00 |
$ 59.00 |
$ 54.00 |
|
Operating Profit |
$ 152,596.00 |
$ 146,967.00 |
$ 76,867.00 |
|
Current Ratio |
2.728 |
2.085 |
2.545 |
|
Time Interest Earned Ratio |
978.179 |
2490.966 |
1423.463 |
|
Debt-to-Equity Ratio |
0.472 |
0.700 |
0.482 |
|
Debt Ratio |
0.321 |
0.412 |
0.325 |
|
Equity Ratio |
0.679 |
0.588 |
0.675 |
|
Efficiency Ratio |
|||
|
Particulars |
2017 |
2016 |
2015 |
|
Inventory |
$ 28,194.00 |
$ 42,953.00 |
$ 11,515.00 |
|
Trade Receivables |
$ 47,104.00 |
$ 25,279.00 |
$ 10,587.00 |
|
Trade Payables |
$ 45,926.00 |
$ 43,888.00 |
$ 24,505.00 |
|
Cost of Goods Sold |
$ 68,279.00 |
$ 53,797.00 |
$ 24,805.00 |
|
Sales Revenue |
$ 220,875.00 |
$ 200,764.00 |
$ 101,672.00 |
|
Inventory Turnover Ratio |
2.422 |
1.252 |
2.154 |
|
Payables Turnover Ratio |
1.487 |
1.226 |
1.012 |
|
Receivables Turnover Ratio |
4.689 |
7.942 |
9.603 |
The above table shows the key ratios which are computed for the business and some of the ratios which are computed are profitability ratios, solvency ratios and liquidity ratios of the business. The profitability ratio which are computed in the above table includes net profit margin, gross profit margin, return on assets and return on equity of the business(Delen, Kuzey and Uyar 2013). The gross profit margin of the business is shown to have increased significantly in comparison to previous year analysis which suggest that the management of the company is trying to increase the profitability of the business. The main reason behind increase in profitability of the business is the increase in sales which is achieved by the business in comparison to previous year(Carraher and Van Auken 2013). The gross profit margin of the business is shown to be 30.91% which is more than the estimates of previous year. The net profit margin of the business is also shown to have increased which shows that there is worth in making investment in the business. Return on assets and Return on equity are considered to be financial indicator for overall success of a business. The estimates which are computed for both return on assets and return on equity is shown to have increased significantly during the year. This shows that the management of the business is focusing in maintaining the profitability of the business(Weygandt, Kimmel and Kieso 2015). Therefore, it can be said that the profitability of the business is appropriate and the same should be considers by the investors while taking major decisions of the business.
Profitability Ratios
The profitability ratio of the business is demonstrated in the graph which is shown in the above figure. The figure clearly shows that the business is focusing on profitability of the business.
The liquidity ratio is represented by the current ratio which is computed in the table above. The current ratio is shown to be favorable as shown in the above figure. The increase in current ratio of the business suggest that the management of the business is also focusing on liquidity situation of the business. The current ratio of the business is closely related to the liquidity position of the business and appropriate liquidity position suggest that the business would be able to finance any projects effectively. The debt to equity ratio of the business is shown to have reduced which shows that the management has taken steps to reduce the same. The management of the business has altered the capital structure of the business and incorporated more of equity capital and reduce the level of debt capital of the business. Appropriate use of a capital structure can bring about improvement in the operations of the business as the same would lead to better balance of the risks of the business.
The above mention graph shows the current ratio of the business which represent the current ratio of the business(Weil, Schipper and Francis 2013). The current ratio of the business of the business for the year 2017 is shown to be significantly high in comparison to previous year analysis.
The efficiency ratios of the business comprise of ratios which can determine whether the business is efficient in its operations or not. The efficiency ratio of the business comprises of receivables turnover ratio, payable turnover ratio and inventory turnover ratio(Needles, Powers and Crosson 2013). The receivable turnover ratio of the business is shown to have decreased slightly which suggest that there is a change in the credit policy for debtors of the business(Lartey, Antwi and Boadi 2013). The inventory turnover ratio of the business is shown to have improved in comparison to previous year and this shows that the inventory management policies of the business is appropriate.
The above graph shows the inventory turnover ratio of the business and the estimate which is shown for 2017 shows significant rise. Therefore, it can be said that some improvement is still required but overall the efficiency of the business is appropriate.
Solvency Ratio
Vertical analysis is a tool which is used by management to measure the performance of a business and present the same in terms of percentage. In order to carry out vertical analysis of the financial statements, a base is considered which is generally sales figure in income statement and total asset figure in case of a balance sheet.
Profit and Loss Statement
|
Statement of Profit and Loss Account |
||||||
|
Particulars |
2017 |
Percent |
2016 |
Percent |
2015 |
Percent |
|
$’000 |
$’000 |
$’000 |
||||
|
Revenue |
$ 220,875.00 |
100.00% |
$ 200,764.00 |
100.00% |
$ 101,672.00 |
100.00% |
|
Cost of sales |
$ 68,279.00 |
30.91% |
$ 53,797.00 |
26.80% |
$ 24,805.00 |
24.40% |
|
Gross margin |
$ 152,596.00 |
69.09% |
$ 146,967.00 |
73.20% |
$ 76,867.00 |
75.60% |
|
Operating expenses |
||||||
|
Interest income |
$ 428.00 |
0.19% |
$ 335.00 |
0.17% |
$ 311.00 |
0.31% |
|
Other operating income |
$ 6,162.00 |
2.79% |
$ 8,389.00 |
4.18% |
$ 2,742.00 |
2.70% |
|
Other gains |
$ – |
0.00% |
$ – |
0.00% |
$ 1,732.00 |
1.70% |
|
Distribution costs |
$ 48,420.00 |
21.92% |
$ 66,358.00 |
33.05% |
$ 36,386.00 |
35.79% |
|
Administrative expenses |
$ 38,615.00 |
17.48% |
$ 35,883.00 |
17.87% |
$ 26,916.00 |
26.47% |
|
Other losses |
$ 4,238.00 |
1.92% |
$ 2,461.00 |
1.23% |
$ 1,304.00 |
1.28% |
|
Finance costs |
$ 156.00 |
0.07% |
$ 59.00 |
0.03% |
$ 54.00 |
0.05% |
|
Total operating expenses |
$ 84,839.00 |
38.41% |
$ 96,037.00 |
47.84% |
$ 59,875.00 |
58.89% |
|
Profit Before Tax |
$ 67,757.00 |
30.68% |
$ 50,930.00 |
25.37% |
$ 16,992.00 |
16.71% |
|
Income tax expense |
$ 12,611.00 |
5.71% |
$ 16,525.00 |
8.23% |
$ 7,691.00 |
7.56% |
|
Net profit for the year |
$ 55,146.00 |
24.97% |
$ 34,405.00 |
17.14% |
$ 9,301.00 |
9.15% |
Balance Sheet
|
Statement Showing Financial Position |
||||||
|
Particulars |
2017 |
Percent |
2016 |
Percent |
2015 |
Percent |
|
$’000 |
$’000 |
$’000 |
||||
|
Non-Currenty Assets |
||||||
|
Property, plant and equipment |
$ 7,560.00 |
3.97% |
$ 8,122.00 |
5.28% |
$ 6,847.00 |
7% |
|
Investment property |
$ 1,164.00 |
0.61% |
$ 1,182.00 |
0.77% |
$ 1,200.00 |
1% |
|
Intangible assets |
$ 8,257.00 |
4.33% |
$ 8,643.00 |
5.61% |
$ 7,018.00 |
7% |
|
Investments in subsidiaries |
$ – |
0.00% |
$ – |
0.00% |
$ – |
0% |
|
Deferred tax assets |
$ 830.00 |
0.44% |
$ 582.00 |
0.38% |
$ 749.00 |
1% |
|
Other receivables, non-current |
$ – |
0.00% |
$ – |
0.00% |
$ – |
0% |
|
Other financial assets, non-current |
$ 805.00 |
$ 2,034.00 |
$ 1,990.00 |
2% |
||
|
Total non-current assets |
$ 18,616.00 |
9.77% |
$ 20,563.00 |
13.36% |
$ 17,804.00 |
19% |
|
Inventories |
$ 28,194.00 |
14.79% |
$ 42,953.00 |
27.90% |
$ 11,515.00 |
12% |
|
Trade and other receivables, current |
$ 47,104.00 |
24.71% |
$ 25,279.00 |
16.42% |
$ 10,587.00 |
11% |
|
Other assets, current |
$ 4,322.00 |
2.27% |
$ 10,240.00 |
6.65% |
$ 7,250.00 |
8% |
|
Other Financial Assets,current |
$ 10,126.00 |
$ – |
$ – |
0% |
||
|
Cash and cash equivalents |
$ 82,228.00 |
43.14% |
$ 54,933.00 |
35.68% |
$ 47,247.00 |
50% |
|
Total Current Assets |
$ 171,974.00 |
90.23% |
$ 133,405.00 |
86.64% |
$ 76,599.00 |
81% |
|
Total assets |
$ 190,590.00 |
100.00% |
$ 153,968.00 |
100.00% |
$ 94,403.00 |
100% |
|
EQUITY AND LIABILITIES |
||||||
|
Share capital |
$ 19,738.00 |
10.25% |
$ 20,169.00 |
13.05% |
$ 20,169.00 |
21% |
|
Retained earnings |
$ 108,002.00 |
56.09% |
$ 68,855.00 |
44.55% |
$ 42,015.00 |
44% |
|
Other reserve |
$ 1,760.00 |
0.91% |
$ 1,563.00 |
1.01% |
$ 1,516.00 |
2% |
|
Total Equity |
$ 129,500.00 |
67.26% |
$ 90,587.00 |
58.61% |
$ 63,700.00 |
66% |
|
Non-current liabilities |
0% |
|||||
|
Deferred tax liabilities |
$ 3,902.00 |
2.03% |
$ 2,826.00 |
1.83% |
$ 2,310.00 |
2% |
|
Other financial liabilities, non-current |
$ 2,037.00 |
1.06% |
$ 4,723.00 |
3.06% |
$ 11.00 |
0% |
|
Total non-current liabilities |
$ 5,939.00 |
3.08% |
$ 7,549.00 |
4.88% |
$ 2,321.00 |
2% |
|
Current liabilities |
0% |
|||||
|
Income tax payable |
$ 10,799.00 |
5.61% |
$ 16,485.00 |
10.67% |
$ 4,624.00 |
5% |
|
Trade and other payables, current |
$ 45,926.00 |
23.85% |
$ 43,888.00 |
28.40% |
$ 24,505.00 |
25% |
|
Other financial liabilities, current |
$ 5,361.00 |
2.78% |
$ 2,638.00 |
1.71% |
$ 7.00 |
0% |
|
Other liabilities, current |
$ 961.00 |
0.50% |
$ 961.00 |
0.62% |
$ 961.00 |
1% |
|
Total non-current liabilities |
$ 63,047.00 |
32.74% |
$ 63,972.00 |
41.39% |
$ 30,097.00 |
31% |
|
Total Equities and Liabilities |
$ 192,547.00 |
100.00% |
$ 154,559.00 |
100.00% |
$ 96,118.00 |
100% |
The above analysis of the financial statement of Best International Ltd shows that the business is doing quite well in all the aspects. The profitability of the business is shown to have improved significantly during the year which suggest that the management is trying to improve the profitability of the business and thereby has been successful in its approach as per the ratios which are computed on the basis of annual report of the business(Sharma and Panigrahi 2013). The liquidity ratio which is shown by current ratio is also shown positive results which suggest that the business can take care of any current obligations of the business effectively. The efficiency ratio of the business is also shown to favorable in terms of inventory management of the business. Therefore, from the analysis of the ratios, it can be said that the investor should invest in the shares of the business as all financial results of the business is shown to be favorable
It is known that a friend is looking to invest $100,000 within the company. In accordance to the analysis that has been done to the company one can suggest the friend to undertake the investment of $100,000 within the organization simply due to the fact that the company has been making profits recently. The ratio analysis that has been done for the financial statement of the company even signifies the fact that the company has an effective profitability ratio and the profit of the company has been increasing with respect to the last two years. The current ratio of the company has shown a strong rise as well along with the inventory turnover ratio and thereby addresses the fact that the company has a strong financial condition. The organization has been developing with the help of effective management policies and it is forecasted that the company will move ahead with respect to their profitability. It is therefore advisable that investments can be made in the company as better results can be ascertained from the same.
|
Perspectives |
Strategic Priorities |
Objectives |
Measures |
Initiatives |
Leading/Lagging Financial/Non-financial |
|
FINANCIAL |
Making the business financially strong and enhance the profitability of the business. |
· Improved ROE · Enhancing the profitability of the business · Improving the cash flows of the business |
· Increase in profits · Exercising control over the activities of the business. · Reduction of costs of the business and increase the revenue of the business. |
· Policy of Asset Utilization · Dividend policy of the business · Advertisement and promotional practices |
Leading Lagging Leading |
|
CUSTOMER |
Building a strong customer base and enhancing the reputation of the business. |
· Build strong relationship with target customers |
· Market needs to be surveyed for establishing the customer preference · Analysing the needs of the customers and responding accordingly |
· Discounting and sales promotion · Gifting and coupon offers. |
Leading Leading |
|
INTERNAL BUSINESS |
Build the Business’s brand Increasing Customer Values |
· Innovative products and services · Best in class in terms Deals for customers · quality of products |
· Setting up of research and development for improvement of the products · Best offers for customers in terms of deals and discounts. |
· Review Program · Market survey for recognizing the needs of the customers. · Quality management practices. |
Leading Lagging Leading |
|
LEARNING AND GROWTH |
Motivated and Prepared Workforce |
· Development of skills and competences for effective work processes. |
· Employee surveys · Employee training and skill development programs |
· Skill and competency development programs |
Leading |
The balance scorecard that has been constructed indicates the four perspectives and thereby a strategy map can be constructed by the company. The balance scorecard even addresses the suggestions with the help of which enhancement of the KPIs have been proposed as well for the company with the help of which the further development of the operational activities of the company can be undertaken.
Conclusion
The above discussion shows that the business of Best International is performing appropriately as per the financial statements of the business and also the ratio which are computed by the business for the year. The analysis also shows vertical analysis of the financial statement of the business in order to estimate whether the performance of the business is appropriate. The assessment also considers financial and nonfinancial factors which are shown with the help of balanced scorecard. The performance of the business suggest that the management of the company can make investments in the business appropriately.
References
Bestworld.listedcompany.com. (2019). Investor Relations | Best World International. [online] Available at: https://bestworld.listedcompany.com/ar.html [Accessed 17 Jan. 2019].
Carraher, S. and Van Auken, H., 2013. The use of financial statements for decision making by small firms. Journal of Small Business & Entrepreneurship, 26(3), pp.323-336.
Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
Lartey, V.C., Antwi, S. and Boadi, E.K., 2013. The relationship between liquidity and profitability of listed banks in Ghana. International Journal of Business and Social Science, 4(3).
Needles, B.E., Powers, M. and Crosson, S.V., 2013. Principles of accounting. Cengage Learning.
Sharma, A. and Panigrahi, P.K., 2013. A review of financial accounting fraud detection based on data mining techniques. arXiv preprint arXiv:1309.3944.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
